Bank of England Governor Andrew Bailey, suggests that a reduction in interest rates in the foreseeable future is an unlikely prospect, warning that the second half of the process of countering inflation in the United Kingdom will be hard work.
During a conversation with media representatives, the head of the financial regulator said that the recent decline in inflation in the mentioned country is good news. However, he noted that this positive indicator is unlikely to be repeated.
Andrew Bailey confirmed that the inflation rate should be reduced to 2%, saying that because of this goal, he refuses to assume that interest rates will decrease in the foreseeable future. According to him, it is too early to discuss such a possibility.
The head of the Bank of England opposes the idea of canceling a series of 14 interest rate hikes. Officials, including Chief Economist Huw Pill, in this context, talk about the risk of sharp internal price pressure, natural in the context of realities such as wage growth and inflation in the sphere of services.
At the beginning of last week, the opinion was spreading in the markets that the process of lowering interest rates in the United Kingdom would begin in June next year. This vision of the future in the economic plane was based on an understanding of the deteriorating prospects. Currently, the opinion is spreading that the reduction of interest rates in the United Kingdom will not begin until August 2024. This is an example of a sharp change in the assessment of prospects in a short period.
The incentives announced by Chancellor Jeremy Hunt in his autumn statement were one of the factors that prompted investors to rein in their bets
Andrew Bailey says that the struggle to return the inflation rate to the Bank of England’s target of 2% is a game of two halves that are not equal. According to him, there will be hard work in the second half because external shocks for prices are unwinding. He also stated that in this case, to achieve the goal, a restrictive monetary policy should be introduced.
In October, the inflation rate in the United Kingdom dropped sharply to 4.6%. In September, this figure was 6.7%. The improvement in the situation in this case was due to a decrease in the cost of household electricity bills under the price cap in Great Britain. Andrew Bailey, commenting on the October result, suggested that the said factor is unlikely to contribute to the fact that in the foreseeable future, the inflation rate will reach 2%.
According to the head of the Bank of England, inflation may become below 4% by the end of the first quarter of next year. He explained his assumption by the weakening of the impact of price shocks abroad. Andrew Bailey also said that inflationary pressure is becoming the main concern of the Bank of England. Separately, he noted that the external background is subdued and expressed concerns that the supply in the economy has slowed down.
The latest forecasts of the Bank of England indicate that the financial regulator expects inflation in the United Kingdom to return to 2% by the end of 2025.
As we have reported earlier, Jeremy Hunt Says About Downgrade of UK Growth Forecast.